Louisville Family Law®

What happens when a Kentucky spouse cheats the tax system?

Home > Blog > 2015 > April > What happens when a Kentucky spouse cheats the tax system?

Apr 9, 2015

What happens when a Kentucky spouse cheats the tax system?

Posted By
Louis P. Winner

Last week we discussed hidden assets in a divorce. This week we will explore
further ways in which a spouse's problematic behavior could affect
an innocent spouse in Kentucky. When one spouse tries to cheat the tax
system, their behavior could have implications for asset division and
other divorce issues.

There are numerous ways a spouse may try to cheat on their taxes. They
may not fully report their income. They may improperly claim tax credits
or take unlawful tax deductions. Unfortunately, if each spouse filed jointly
before they divorced, each spouse will typically still be liable for any
tax issues caught by the Internal Revenue Service after the divorce has
finalized based on those filings. Even if the couple's divorce decree
designates one spouse or the other to be responsible for taxes, the IRS
need not follow such a decree. This leaves both spouses on a joint tax
return responsible for the information provided therein, or lack thereof.
This is especially problematic in a
high asset divorce.

So how can an innocent spouse avoid being swept up in their ex-spouse's
tax affairs? First of all, while married, if there is any indication that
one spouse is trying to cheat the tax system, the other spouse may submit
their taxes as "married filing separately." This way, each spouse
is only responsible for reporting his or her personal income, along with
any consequences that may follow.

If a couple had already filed jointly, there still may be options. A spouse
could submit an application through the IRS for "innocent spouse
relief." This is because the IRS acknowledges that sometimes one
spouse has no idea that their partner is trying to cheat the tax system.
By filing for "innocent spouse relief," the spouse who honestly
did not know of their partner's illegal actions may not be held liable
for any consequences that stem from such actions. However, to be granted
such relief, it usually must be shown not only that the spouse was not
aware that their partner was behaving unscrupulously, but also that they
had no reason to think so.

In the end, it is important for spouses to be aware of their partner's
income and financial transactions both prior to and following a divorce.
A Louisville high asset divorce attorney can assist either spouse in understanding
their legal responsibilities and rights under the law.